Technical Analysis

Index Outlook: Is Sensex, Nifty gearing up for a fresh sell-off?

Gurumurthy K |BL Research Bureau | Updated on: Jun 11, 2022

Failure to get a strong follow-through rise leaves the indices vulnerable for a steep fall

The Indian benchmark indices snapped their three-week rally and fell sharply last week. Both the Sensex and Nifty 50 fell over 2 per cent each and closed on a weak note. The price action last week clearly indicates that there is a lack of strong follow-through buying. It also reflects the lack of confidence and the negative sentiment in the market. So as mentioned last week, the broader picture is still weak, and the indices remain vulnerable for a steep fall, going forward.

Among the sectors, the BSE Consumer Durables index fell the most by 3.35 per cent. It was followed by the BSE IT and BSE Metals, down 2.78 and 2.74 per cent respectively.

The Foreign Portfolio Investors (FPIs) continue to sell Indian equities. They had sold $1.49 billion in the equity segment last week. With this, the quantum of sell-off for June stands at $1.78 billion.

The Reserve Bank of India (RBI) increased the repo rate by 50 basis points (bps) to 4.9 per cent last week. This was more inline with the market expectation. As such, it did not have any major impact on the equity markets.

The US Federal Reserve meeting outcome of Wednesday will be an important event to watch. That could cause volatility in the market.

Nifty 50 (16,201.8)

Nifty 50 traded lower all through the week. The sharp bounce seen on Thursday failed to sustain and get follow-through rise. The wide gap-down open and a lower close on Friday leave the picture weak and vulnerable to see more fall. Nifty made a low of 16,172.6 on Friday before closing the week at 16,201.8, down 2.31 per cent.

Chart Source: MetaStock

Chart Source: MetaStock

The week ahead: Immediate supports are at 16,180 and 16,000. Strong resistance is in the 16,400-16,500 region. Even if the Nifty manages to hold above 16,000 and bounces back, the upside is likely to be capped at 16,400-16,500. As such the bias is negative to see a break below 16,000 this week. Such a break can drag the Nifty down to 15,780 and 15,645 – the next important short-term supports this week.

Trading strategy: Traders can go short now and accumulate shorts at 16,380. Keep an initial stop-loss 16,540. Trail the stop-loss down to 16,060 as soon as the index falls to 15,920. Move the stop-loss further down to 15,890 as soon as the index touches 15,830 on the downside. Exit the short positions at 15,790

Medium-term outlook: The broader bearish view is still intact. The level of 15,645 – the key short-term support will now need a close watch. A break below it will trigger a steeper fall to 15,000 and 14,500-13,500. As we have been mentioning here, the 14,500-13,500 region is a strong long-term support zone. We expect the Nifty to find a bottom in this region. A fresh rally from here will mark the beginning of a new long-term upmove. As such, we will be looking the market from the buy side as the Nifty reaches 14,500-13,500.

For now, 17,000 will be an important resistance. Only a break above it will cause more delay in the above-mentioned fall to 15,000 and 14,500-13,500.

Trading strategy: Positional traders can continue to hold the short positions taken at 17,171. Retain the stop-loss at 16,900. Move the stop-loss down to 16,100 as soon as the index touches 15,600 on the downside. Book profits at 15,100.

What to watch
Support at 15,645 on Nifty
Support at 52,400 on Sensex
US Fed meeting on Wednesday

Sensex (54,303.44)

Sensex broke below 55,000 and fell towards 54,000 last week. It made a low of 54,205.99 and closed the week at 54,303.44, down 2.7 per cent.

Chart Source: MetaStock

Chart Source: MetaStock

The week ahead: The struggle to rise past 55,500 and the subsequent fall below 55,000 last week is negative. Immediate support is at 54,000. The bias is negative to see a break below 54,000 and a fall to 53,000 and 52,500-52,400 this week.

Strong resistance will be in the 55,000-55,500 region which is likely to cap the upside.

Medium-term outlook: Inability to see a sustained rise past 56,000 and the fall below 55,000 keeps the broader picture weak; 52,400 is an important short-term support. A break below it can take the Sensex down to 51,500-51,400 initially. An eventual break below 51,400 can drag the index down to our preferred target levels of 50,000 and 48,000.

We reiterate that 50,000-48,000 is a strong long-term support zone where the current fall can halt. We will have to start looking at the market from the buy side as the Sensex falls to 50,000-48,000 region. That will be a good buying opportunity from a long-term perspective.

Nifty Bank (34,483.80)

The Nifty Bank index fell for the second consecutive week. It remained below 36,000 all through the week and fell to a low of 34,346.65 on Friday. It has closed at 34,483.80, down 2.24 per cent for the week.

Chart Source: MetaStock

Chart Source: MetaStock

Immediate support is at 34,000. A break below it can take the Nifty bank index down to 33,000 in the near term. The 100-Week Moving Average (WMA) support is poised just above 33,000 at 33,023. A further break below 33,000 will see the fall extending towards 32,000 over the medium term. Resistances are at 35,000 and 36,000.

Trading strategy: Traders can go short now and accumulate shorts at 34,780. Keep the stop-loss at 35,350. Trail the stop-loss down to 34,300 as soon as the index moves down to 33,800. Move the stop-loss further down to 33,800 as soon as the index falls to 33,300. Book profits at 33,150.

Global cues

The Dow Jones Industrial Average (31,392.79) witnessed a strong sell-off last week. The index broke below the key support level of 32,500 and tumbled 4.6 per cent last week.

The outlook is bearish. Cluster of resistances are poised in the broad 32,350-33,000 region. The wide gap-down open on Friday leaves the chances high for the Dow to remain below 32,000 this week. A fall to 30,000-29,850 looks likely in the coming weeks. From a big picture, the Dow now looks vulnerable to target 29,200 and even 28,500-28,300 over the medium term

Published on June 11, 2022
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